Hubei Hendy Pharmaceutical 2025 Annual Report Analysis: Non-GAAP Net Profit Plummets 89.19%, Operating Cash Flow Net Drops 92.14%

In-Depth Breakdown of Core Profitability Metrics

Operating Revenue: Structural Divergence Behind a Slight Increase

In 2025, the company reported operating revenue of 453,306,981.13 yuan, up only 1.67% year over year, with a significantly narrowed revenue growth margin compared with the previous year. By business segment, revenue from the core active pharmaceutical ingredients (APIs) business was 338,341,584.56 yuan, down 5.00% year over year; gross margin fell from 21.18% to 12.81%, becoming the main drag on revenue growth. The dosage forms business performed strongly: revenue was 107,461,500.31 yuan, up 26.11% year over year, but gross margin also decreased from 60.89% to 55.21%. Other business revenue was 7,503,896.26 yuan, surging 66.94% year over year; however, its gross margin was -33.34%, indicating a loss state.

Net Profit: A Halving-Style Decline, Stabilized by Non-Recurring Gains

Net profit attributable to shareholders of the listed company was 34,910,598.79 yuan, down sharply 61.87% year over year; profit from recurring operations (non-recurring excluded) fell even more dramatically—down 89.19% to 7,883,456.48 yuan—showing a severe deterioration in the main business’s profitability. Total non-recurring gains and losses for the year were 27,027,142.31 yuan, serving as the main support for net profit; if this portion is excluded, the core business would only achieve a slight profit.

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Earnings Per Share: Synchronized and Significant Decline

Basic EPS fell from 0.22 yuan/share in 2024 to 0.08 yuan/share in 2025, down 63.64% year over year. Non-recurring EPS fell from 0.25 yuan/share to 0.02 yuan/share, down 92.00% year over year. The magnitude of the EPS decline is broadly consistent with that of net profit, reflecting that the earnings contraction has been transmitted comprehensively to shareholder returns.

Expense Structure and R&D Investment Analysis

Total Expenses: Rigid Growth Eats Up Profit

In 2025, the company’s total expenses (sales + administrative + R&D + finance) totaled 80,811,720.41 yuan, up 78.89% from 45,174,823.86 yuan in 2024. The expense ratio rose from 10.13% to 17.83%, becoming an important factor suppressing profitability.

Breakdown of Expenses: Administrative and Finance Expenses Swing Sharply

• Sales expenses: 20,636,163.31 yuan, down 10.01% year over year. This was mainly because market promotion expenses fell from 15,163,708.66 yuan to 12,057,820.41 yuan, a drop of 20.48%; however, staff compensation, travel expenses, and others still increased slightly.
• Administrative expenses: 44,878,424.15 yuan, up 14.22% year over year. Among them, intermediary service fees increased from 5,772,642.87 yuan to 8,004,736.41 yuan; office expenses increased from 1,062,629.43 yuan to 1,528,615.55 yuan. The combined increase of the two items was 2,700,080.66 yuan, which is the main driver of the growth in administrative expenses.
• Finance expenses: -9,882,908.16 yuan, narrowing significantly by 80.11% compared with -49,686,875.12 yuan in 2024. The main reason was that interest income decreased, with investment returns from idle funds declining markedly.
• R&D expenses: 25,180,041.91 yuan, down 23.55% year over year; however, the total R&D investment was 28,793,641.91 yuan. Of this, 3,613,600.00 yuan was capitalized, with a capitalization rate of 12.55%, up from 0% last year. This reduced the pressure from current-period expenses to a certain extent.

R&D Personnel and Project Progress

During the reporting period, data related to the company’s R&D personnel were not disclosed in terms of specific headcount and structure, but R&D project progress has been mixed: four product categories, including ibuprofen sustained-release capsules and torasemide injection, obtained Drug Registration Certificates; for two product categories, including arginine ibuprofen API, their listing application approvals were obtained. Meanwhile, multiple product categories such as abiraterone acetate tablets and ibuprofen injection are still in the R&D stage. At the same time, the company added two patent applications, and both have entered the substantive examination stage.

Cash Flow: Near Exhaustion of Operating Cash Generation

Overall Cash Flow: Net Amount Sharply Decreases

In 2025, the net increase in cash and cash equivalents was -104,281,292.12 yuan, compared with -1,151,186,723.05 yuan in 2024, which narrowed somewhat, but it still remained in net outflow. Pressure on the company’s capital position remains high.

Segment Cash Flow: Operating End Worsens Significantly

• Cash flow from operating activities: Net cash flow was only 7,550,819.46 yuan, plunging 92.14% year over year. This was mainly because cash inflow from operating activities fell from 460,553,003.21 yuan to 406,788,250.41 yuan, down 11.67% year over year; meanwhile, cash outflow rose from 364,479,760.32 yuan to 399,237,430.95 yuan, up 9.54% year over year. Slower collection of receivables and higher cost outlays led to a sharp decline in operating cash generation capacity.
• Cash flow from investing activities: Net cash flow was -37,287,962.28 yuan, significantly improving 96.64% compared with -1,109,461,774.79 yuan in 2024. This was mainly because cash inflow from investing activities increased from 99,313,723.17 yuan to 490,749,331.64 yuan, up 394.14% year over year, while cash outflow decreased from 1,208,775,497.96 yuan to 528,037,293.92 yuan, down 56.32% year over year. The company substantially reduced long-term asset investment and also disposed of some investments to recover funds.
• Cash flow from financing activities: Net cash flow was -73,402,643.11 yuan, improving 47.52% compared with -139,871,461.88 yuan in 2024. This was mainly because cash outflow from financing activities decreased from 139,871,461.88 yuan to 73,402,643.11 yuan year over year, down 47.52%. The company reduced the scale of dividend distributions and debt repayments.

Compensation for Board and Senior Management and Risk Warnings

Compensation for the Board and Senior Management: Compensation of the Core Management Is Stable

• The Chairman, Cheng Zhigang, reported total pre-tax compensation of 61.47 hundred thousand yuan during the reporting period;
• The General Manager, Liang Qun, reported total pre-tax compensation of 43.51 hundred thousand yuan during the reporting period;
• Among deputy general managers: Zhu Weihua has the highest compensation at 73.65 hundred thousand yuan, followed by Zhang Kui-li at 49.69 hundred thousand yuan, Huang Zhenghua at 38.76 hundred thousand yuan, and Guan Qianqian at 38.12 hundred thousand yuan;
• The CFO, Gao Jian, has compensation of 40.42 hundred thousand yuan, and the Secretary to the Board, Yi Tinghao, has compensation of 42.07 hundred thousand yuan.

Overall, there is a certain mismatch between the compensation of the core management and the company’s performance decline, but there has been no major change.

Potential Risk Warnings

• Market competition risk: Competition in the API sector is intense, and price fluctuations for bulk APIs such as ibuprofen are significant. The company’s gross margin from the API business has fallen sharply; if prices remain sluggish, profitability will be further suppressed. While the dosage forms business is growing relatively quickly, under the centralized procurement (volume-based procurement) policy, price pressure remains ongoing, and market promotion uncertainty exists for newly approved products.
• R&D risk: The company is advancing multiple R&D projects, but the pharmaceutical R&D cycle is long, investment is large, and the success rate is low. If future R&D fails or progress is behind expectations, it will affect the company’s product pipeline layout and future growth potential.
• Cash flow risk: Net cash flow from operating activities has shrunk significantly. The company’s own cash-generation capacity is insufficient. If, going forward, collections of accounts receivable slow down and inventory buildup worsens, it will create greater pressure on the capital chain.
• Policy risk: The pharmaceutical industry is profoundly affected by policy. Changes in centralized procurement, medical insurance negotiations, regulatory policies, and others may have material impacts on the company’s production and operations, product pricing, market access, and related aspects.

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